Inefficient management, low recovery rate threaten student loan fund self-reliance

By The Inspirer

An inefficient recovery system still haunts the student loan scheme even five years after its management was handed over to the Development Bank of Rwanda (BRD). This issue, according to the Auditor General’s Office and the Parliament’s Public Accounts Committee (PAC), threatens the sustainability of the fund.

It was exposed by the performance audit of the tertiary education financing scheme carried out by the Auditor General of State finances, and discussed during the public hearings held on Tuesday, September 14, 2021 by PAC with officials from the Higher Education Council (HEC), and the BRD.

This audit, which covered a period from January 2015 to April 2021,  focused on management of student loans and bursaries since the tertiary education financing scheme was transferred to BRD (October 2015 – April 2021).

Its objective was to assess whether HEC ensures that student loans and bursaries activities are effectively managed to make the tertiary education financing scheme efficient and self-sustainable.

It was envisaged that recoveries should be used by BRD as a revolving fund by 2025 and BRD was supposed to annually recover Rwf9.9 billion (on average) compared to Rwf1.5 billion that were being recovered under REB.

However, for five years (January 2016-September 2020) since BRD took over the management of student loans and bursaries, only 24 percent (Rwf11.78 billion) of the targeted amount of Rwf49.5 billion) to be recovered was realised.

This data implies that BRD recovered an average annual amount of over Rwf2.35 billion.

It is to note that the report showed BRD disbursed over Rwf184.6 billion of study loans and bursaries to students in higher learning institutions in Rwanda and abroad.

“This student loan recovery rate is very low. There is a major worry for this scheme to be a sustainable revolving fund,” said MP Germaine Mukabalisa.

The report expressed concern that with the current progress on recoveries, it will be difficult for the scheme to achieve the target of becoming a fully self-sustainable revolving fund by 2025, pointing to challenges including that the number of loan beneficiaries eligible for repayment and their associated recoverable amount is not known.

BRD inherited from REB the list of 88,451 loan beneficiaries classified by their periods of study for follow-up and recover the student loans disbursed to them.

However, the report found that as of April 2021 the Bank does not have a complete updated list of eligible beneficiaries who have to pay back and the loan amounts (principal and associated interests) every individual should repay.

Given this problem, the report said there is a risk that funds disbursed as report loans will not be recovered exhaustively in order to make the scheme a revolving fund.

Overcharging beneficiaries?

The report noted that BRD does not reconcile the amount recovered to every individual beneficiary repaying the study loan.

This issue, it said, resulted in overcharging beneficiaries, increasing unsupported revenues and reporting inaccurate information.

It revealed that BRD overcharged beneficiaries over Rwf221.8 million of which over Rwf50.8 million were refunded to individuals who claimed their overpayment.

However, BRD CEO Kampeta Sayinzoga told PAC that the bank does not overcharge students for loans.

“BRD does not overcharge because the declaration is done by the employer. The most common case is when the employer continues to deduct the employee’s salary yet they indeed fully settled the loan,” she said.

She added that all the overcharged people who were indicated in the Auditor General’s report were reimbursed their money.

PAC Chairperson Valens Muhakwa said there should be collaboration between BRD and employers so that when the amount due is fully cleared, the staff’s salary does not undergo further deduction – which is currently 8 percent of the beneficiary’s monthly gross salary.

Sayinzoga said that this year, the Bank is working on a technology-run system that will notify the student loan beneficiaries their repayment status, pointing out that so far, they have to write to the bank to get a bank debt statement.

For public servants, she said that they are integrating with the Integrated Personnel and Payroll Information System (IPPIS) so that it can stop the salary deductions when the loan is paid off.

Lack of recovery mechanisms for loan recipients who studied and work abroad

The audit sampled 329 beneficiaries who studied abroad, and found that 68 percent of them had finished their studies in the period ranging from January 2016 to December 2020.

However, it noted, BRD and HEC do not know whether they returned or stayed abroad, nor whether they are working so that they could start paying back their loans.

Consequently, the report warned that it will be difficult to recover exhaustively student loans disbursed to beneficiaries who studied abroad.

Some of the proposed solutions to the issue

Sayinzoga said that BRD has started working on the integration of the system of BRD, Higher Education Council, Rwanda Revenue Authority (RRA) and Rwanda Social Security Board (RSSB), which she said will help get the notification when the loan beneficiary with given identity number has started declaring tax to RRA or pension contributions to RSSB, which implies they have got employment.

“So, that will help us a lot because we did not have an automated system to help us know when a loan recipient has got a job or become economically active [so that they start repaying the loan],” she said.

For public service, she said the integration with the IPPIS will send a notification that a person with a given identity number has got a job.

Regarding the student loan beneficiaries in the diaspora, she said that, through the partnership with the Ministry of Education and the Ministry of Foreign Affairs and International Cooperation, they are exploring ways to recover the loan from such beneficiaries through Rwandan high commissions abroad and sensitising diaspora communities to repay.

Meanwhile, the cabinet paper of 10 April 2015 on the new mechanism of tertiary education financing approved by the cabinet resolutions of 14 April 2015 provided that the students to access loans should increase from 16 percent to 36 percent overtime for the coming 10 years.

HEC said that currently, 24 percent of students who finish secondary school receive government scholarships, giving an example that, of 37,184 students who graduated from secondary school in 2018, 11,935 were offered the loan.

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